Are the Markets Ready To Collapse? What to Watch For As Indication

Is the market ready to collapse or will it continue to inch higher defying all fundamentals?

For medium and long term investors, this is a great video by INO that shows exactly what to look for in an easy manner. It looks closely at the S&P500 (or SPY ETF). It is getting very close to a sell signal, key level is 1,083, and watching the MACD crossover. The video explains very well how and why this will happen. It also explains the monthly and weekly alerts which I have backtested here at length. Excellent stuff.

Watch Video.

Backtesting: These are the current monthly signals on the SPY (as of 10AM):



This is what happened with $10k invested in 2005 using these signals, compared with buy and hold. Note that this is a very long period that included may ups and down and the market collapse of 2007/2008.





These are screen captures from today's video:

You can also use the tool on a free trial basis through this custom link (I have access to the tool).

Canadians Pay Twice as Much As Americans for Natural Gas

Natural gas prices skyrocketed today on the news that the storage dropped by 65Bcf. UNG was up 6%, even though storage is way above average and industrial consumption is still very weak.

Even though prices are at decades low, citizens on both sides of the border are not benefitting equally. Please take a look at the prices paid by two immediately neighboring regions, Michigan and Ontario.

Michigan, October 2009 bill: US$ 48.06 for 3,800 cubic feet.



Across the river in Ontario, here is a November 2009 bill:

CAD $102.28 (US$97.16) for 319 cubic meters (3,434 cu. ft.) (the water tank rental fee was deducted) .

These two bills represent very similar consumption levels.

Per cubic foot, the final cost is 12.64c in Michigan. In Ontario it is 28.29c. This includes all taxes, delivery charges, etc. Natural gas in Ontario costs 2.23 more, or 123%. This after prices have dropped in Ontario from around 33c/cu ft to 12.95c/cu ft. It's all the extras that make up the difference. My bills last year were around $300/$400 per month, now they are only $115...

Companies

Enbridge (ENB) does the delivery and Encana (ECA) is the big producer.
Enbridge is up around 36% this year while Encana was up 8% (until it split into two separate entities for oil and gas).




Seems like and high margins and easy money for these companies.

Many thanks to miadhach for his invaluable contribution with the Michigan part of this report.

Jim Rogers: The Fed Should Be Audited and... Abolished

Jim Rogers is on a roll with more public appearances lately than Roubini. Yahoo interview:

Everybody is audited, the church is audited, the Red Cross is audited...

"It's incomprehensible to me these people are saying they have no reason to be audited -- they must have done something wrong, must have something to hide."

"We don't need the Fed. The Fed is making our lives miserable," the famed financier says. "The Fed is printing huge amounts of money, which we'll have to pay for sometime. The Fed is borrowing gigantic amounts of money on their balance sheet...the numbers are so staggering that this is going to have ramifications before too much longer."

"The Fed is going to abolish itself," he predicts. "Between Bernanke and Greenspan they've made so many mistakes [that] within the next few years the Fed will disappear."

Watch video.

Stiglitz: Overwhelming Force Needed, Government Should Spend Even More

In an interview with Bloomberg, Nobel Prize-winning economist and Columbia University professor Joseph Stiglitz said U.S. lawmakers need to use overwhelming force to cut a 10% unemployment rate. He told the Joint Economic Committee that more government spending and tax cuts are needed:

“There is, in economics, something akin to the Powell doctrine in the military: One needs to attack the problem with overwhelming force,” “As we approach the looming jobs problem, we should not repeat the mistakes we have continually made in responding to this crisis: too little, too late.”

“We should not be fooled by the decline in the jobless rate", “Growth in private demand” will probably be “insufficient to restore employment to normal levels any time soon.”

“Unless action is taken, we risk facing a vicious cycle: unemployment contributing to a weak economy, more mortgage foreclosures, more bad debts, lower demand, and possibly more, but certainly not less, unemployment.”

He also said that unemployment benefits should be extended even more, when record nunber sof people are using them (see earlier post today), and states should be helped since they have revenue shortfalls. The government should give tax credits for weatherizing homes, government jobs programs and research and technology initiatives.

In the meantime, the Treasury Department says that the deficit in November was $120.3B, the 14th straight monthly shortfall, and higher than a congressional estimate of $115B. Receipts were $133.6B; outlays were $253.9B.

Nevertheless, Stiglitz also said that banks and mortgage lenders have been discouraged from restructuring home loans because they are allowed to carry those loans at face value even though many of the mortgages are underwater and likely to result in a default. “I call that marking to hope, not marking to market,”.

Congress should pass a “homeowner’s Chapter 11” bankruptcy reorganization law to make it easier for people to force a restructuring of their mortgage debt. “That would provide a legal backdrop to encourage restructuring,” “We need a homeowners Chapter 11 that treats homes at least as well as we treat corporations.”

People on Emergency Unemployment: 4.1M in Nov 2009 vs 729K in 2008

In more shocking news, the Department of Labor reported today that there were 4,178,780 persons claiming Emergency Unemployment Compensation benefits for the week ending Nov. 21, an increase of 327,729 from the prior week. In 2008, there were 729,256 claimants in the same period.

That is 5.7 times higher (470%).

The federal government provides up to 13 additional weeks of Emergency Unemployment Compensation (EUC) benefits for states that reach a total three-month average unemployment rate greater than 6 percent.

EUC is a 100% federally funded program that provides benefits to individuals who have exhausted regular state benefits. The EUC program was created on June 30, 2008, and has been modified several times. Most recently, on November 6, 2009, the President signed the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92) which expanded EUC by adding up to 14 additional weeks of benefits in all states, and creating up to 6 weeks of additional benefits in certain States with high unemployment rates. The EUC program is set to expire, unless extended again, on December 31, 2009.

The highest insured unemployment rates in the week ending Nov. 21 were in Puerto Rico (6.1 percent), Oregon (5.6), Alaska (5.5), Nevada (5.1), Wisconsin (4.9), Washington (4.8), Michigan (4.7), Pennsylvania (4.7), Arkansas (4.5), Idaho (4.5), and North Carolina (4.5).
The largest increases in initial claims for the week ending Nov. 28 were in Wisconsin (+8,067), Kansas (+3,825), Missouri (+3,307), Iowa (+2,789), and Indiana (+2,162), while the largest decreases were in California (-28,672), Texas (-9,519), North Carolina (-8,873), Florida (-7,214), and Illinois (-6,610)."

21M Homes Behind Payments, Defaults by Convenience: Yet More Huge Costs to Banks

There are 3.9M filing for foreclosure in U.S in 2009, and 4.8M homes who are behind 3 months or more in their payments. It is difficult to extract an exact number, but the homes in trouble represents somewhere between 10 and 20% of the overall U.S. housing market.

Among these, many are caused are strategic defaults. The Wall Street Journal reports on this today.

"Thanks to a rare confluence of factors -- mortgages that far exceed home values and bargain-basement rents -- a growing number of families are concluding that the new American dream home is a rental. Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That's freeing up cash to use in other ways. ... Ms. Richey's family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. "We're saving lots of money," Ms. Richey says".

People choosing to default to have extra money to buy Disney season tickets. You have to wonder what is going on with a society where this kind of actions happens. One could discuss the kind of values being taught to the children. The title of this blog applies here, again. Shocking.

Back to economics. The costs to banks could reach another $0.5B to over $1T, if a fraction of the people who are behind on payments follow that path.

Map of strategic defaults:



These are people, according to Experia, that are able to pay their mortgage but choose to default. Why? Because they have little equity in their houses and their houses have dropped considerably in price. What they owe is worth more than what the house costs today. There will be 21M of these homes in 2010 according to DB.

If they have $100k in equity on a house they bought for $750k a coupe of years ago, then they owe $650k. The problem is, this house today may be worth $250k to $350k. Why owe $650k, when they can owe $350k?

Immoral? Yes, but the banks who created this mess were immoral too because they knew what they were doing. If they did not, they were plain incompetent.

This is a difficult problem, and a very costly one which is far from being resolved

Best Dividend ETFs To Buy and to Short

Here are the best dividend ETFs to buy or to short, sorted by RSI7.

Short term (RSi daily), from most oversold to most overbought:




Note that none are strictly oversold or overbought.

Long Term: (RSI monthly)



Again, none are overbought or oversold.

These are the ETF names and average trading volumes:




You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Please do your own due dilligence.

Volkswagen Buys 20% of Suzuki, Targets Toyota For Number 1 Spot

Volkswagen, VLKAY (OTC), is buying 20% of Suzuki Motor, creating a dominating global presence particularly in the emerging markets of China and India. Volskwagen is a very a big player in Brazil already.

Suzuki Motor Corporation will sell 107.95M of its own shares it currently holds to Volkswagen AG for JPY2,061 per share. VW will then own a 19.9% stake in Suzuki Motor Corporation.

Suzuki was the automobile leader in Japan for 30 years, until Toyota took over the number one spot. Suzuki is currently the number one in India, where Maruti Suzuki India has 50% of the market (75% of cars are small hatchbacks).

Volkswagen has been doing much better than its competitors, particularly due to is presence in China and Brazil.

Bear Market Rallies Are To Be Rented, Not Owned

"We long maintained that this 60%+ rally from the lows was a bear market
rally, and unlike secular bull rallies, these are to be rented and not
owned."

"Japan had nearly half about dozen of these since its credit collapse began two decades ago."

David Rosenberg, December 9 2009 (Breakfast With Dave)

Profit From Japan Stocks Or The Yen Going Up or Down

The crisis in Japan is serious. For the moment, the Yen is overvalued as companies repatriate funds to take advantage of a tax holiday. This uncertainty atmosphere is ideal for straddles.

Here are some for EWJ (Japanese index), and FXY (Yen trust). These are obtained from the StraddlesCalc tool, which indicates the maximum move requierd to achieve profitabiliy. Actual move may be lower if it happens with still time left to expiry, or if volatility increases (causing premiums to increase).





Note that liquidity is thin on FXY in the far out months. As for December, although the moves requerid are quite low, that is only 9 expiration days away, so very risky.

Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Please do your own due dilligence. This is not adgive. Options are very dangerous and may cause 1o0% loss.

A Big Japan Oops: Growth of 1.8% Instead Of The Estimated 4.3%, Deflation

We have written about the dire Japanese situation on several occasions, "Japan, the land of the setting sun".

This will certainly not help. It's a big oops. You'd think heads would roll.

Bloomberg: "Japan’s economy expanded less than a third of the pace initially reported in the three months to September as companies slashed spending. Gross domestic product rose at an annual 1.3 percent pace, slower than the 4.8 percent reported in preliminary figures last month, the Cabinet Office said today in Tokyo. The revision was deeper than the predictions of all but one of the 17 economists surveyed by Bloomberg News".

"Today’s report added to evidence that falling prices are taking hold in the economy. In nominal terms the economy shrank 0.9 percent last quarter, compared with the government’s initial prediction for a 0.1 percent contraction. The GDP deflator, the broadest indicator of price declines, slid 0.5 percent. The gauge has only risen twice in the past decade. "


"Falling prices have been squeezing profit at home, prompting the government to declare last month that the country is back in deflation and push the Bank of Japan to do more to spur the economy".


The Nikkei is down 1.23% as of 12PM local time (10PM ET):

Rice Prices Increasing Significantly, ETNs and Futures

Rice prices continue to rise dramatically, as we reported on November 3. BNN had two segments on rice today.

- Rice is The world's most important food commodity

- Rice one of the most heavily subsidized and protected commodities in the U.S., which leads to higher prices for Americans

- Producers are organized and have trade groups and lobbies

- We should get rid of these programs for the good of the world, unfortunately politics gets in the way

In 2006 the Cato Institute's Daniel Griswold wrote about the hidden costs of U.S. rice subsidies, and how U.S. policies often drive the price for rice lower. BNN interviewed Daniel Griswold, director, centre for trade policy studies, Cato Institute, why he stands by those views today. Watch video 1

"Rice prices are on the rise after a typhoon in the Philippines and speculation that India will be allowing major imports of rice for the first time in decades. BNN spoke with Ali Bilgen, president, A&BB Rice, a company that provides Canada with 60% of its rice, to find out where prices are heading.

Watch video 2

Investing in rice:

You can buy the rice futures or use an ETF like the Rogers Commodity RJA ETN. However, its rice component is only 1.4% of the ETN:



Price chart:

Another way is to use the rice futures. INO chart showing buy and sell alerts):

Bernanke Chosen As Top Global Thinker; Roubini, Number 4.

Foreign Policy is certainly courting controversy with its choice of the top 10 Global Thinkers, and more so for the reasons:



1. Ben Bernanke, for "for staving off a new Great Depression." Really? Wow! Is the danger of one over?



2. Barack Obama, for "reimagining America's role in the world"



3. Zahra Rahnavard, for "being the brains behind Iran's Green Revolution"




4. Nouriel Roubini, for "accurately forecasting the global financial pandemic"




5. Rajendra Pachauri, for "ending the debate over whether climate change matters".

Read the entire list at their site.

Meredith Whitney: The U.S. Has Run Out of Bullets: Video

Meredith Whitney fresh interview With CNBC: The US has run out of bullets.

- the government is running out of ways to help the economy, "I think they're out of bullets,"
- strongly pessimistic about the prospects for recovery.
- concerned with the lack of credit access for consumers (see our previous post today). Core loan book and credit-card loans are very low. How are banks going to make money? Leaves them only with trading...
- banks can borrow at 0% but are not putting it back into the marketplace.
- the solution is for the government to take proactive steps that will give consumers more money to spend. "I don't think you can cut taxes enough to stimulate demand," "For a 2010 prediction, which is so disturbing on so many levels to have so many Americans be kicked out of the financial system and the consequences both political and economic of that, it's a real issue. You can't get around it. This has never happened before in this country."

Starddles For The Recovery Of The U.S. Dollar and The Drop in Gold: GLD, UUP, AUY, EWZ

The US Dollar may be finally giving signs of a recovery. Here are the straddles for December. With 10 days to expiration, these are risky. They were computed with the StraddlesCalc tool.

If you believe the US Dollar can move 2.8% in 10 trading days, then that can be a good option. However, because UP is right in the middle of strikes (22 and 23), it is also very risky and it may end between those strikes, making both positions worthless.

We usually prefer our favorite versions, AUY (Yamana), and EWZ (Brazil):




Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Please do your own due dilligence. Options are very risky and may cause 100% loss. This is not advice!

Consumer Credit Drops For 9th Straight Month: A New 66 Year Record

Although consumer credit fell less than expectations in October, by $3.5B, it has now fallen by 9 consecutive months. According to David Rosenberg's note today, this has not happened in 66 years.

Please see the chart:

He adds that banks continue to tighten credit conditions and "are hesitant to extend lending prcatices", this at a time with unemployment is still very high.

Buy and Sell Long Term Alerts Generated Today, Includes KR, ABB, LEN

Here are the buy and sell alerts generated today. These are monthly alerts, so they are long term signals. For backttesting of these signals, please see our various prior posts, such as this.

e
(please click to enlarge)

Note the presence of well-known KR, ABB, and LEN in the alerts.

These were obtained with INO's scanning tool (free trial available).

You can also receive technical analysis and alerts of these stocks, or any stock you wish, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool.

Please do your own due dilligence.

Carbon Derivatives, The Next CDS Scheme?

We reported yesterday on the new CO2 hazard declaration. Bloomberg reports that the carbon trading scheme will be largely centered around derivatives, and the same woman who "invented" cerdit default swaps is working on the carbon version - on behalf of JPM. Although some CDSs serve useful purposes, we know what happened with some rather large banks who got engaged in CDSs. Will global carbon trading do the same, and to whom?

For the regular investor who cannot do CDSs, GRN is the Global Carbon ETF. As mentioned yesterday, it is great because it is very nicely uncorrelated with pretty much anything else, see previous post. The current RSI7s of GRN are:

Short-term: 74.38
Mid-Term: 56.72
Long-Term: 40.38

It is overvalued in the short term, in great part due to the jump yesterday, but is somewhat undervalued in the long term.

Back to derivatives: Says Bloooberg: "JPMorgan, Goldman Sachs Group Inc. and Morgan Stanley will be watching closely as 192 nations gather in Copenhagen next week to try to forge a new climate-change treaty that would, for the first time, include the U.S. and China. The banks are preparing to do with carbon what they’ve done before: design and market derivatives contracts that will help client companies hedge their price risk over the long term. They’re also ready to sell carbon-related financial products to outside investors.

The woman is Blythe Masters, "the woman who built financial weapon of mass destruction", and seh says banks must be allowed to lead the way if a mandatory carbon-trading system is going to help save the planet at the lowest possible cost. And derivatives related to carbon must be part of the mix, she says. Derivatives are securities whose value is derived from the value of an underlying commodity — in this case, CO2 and other greenhouse gases…

Ms. Masters "oversees the New York bank’s environmental businesses as the firm’s global head of commodities…As a young London banker in the early 1990s, Masters was part of JPMorgan’s team developing ideas for transferring risk to third parties. She went on to manage credit risk for JPMorgan’s investment bank. Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap".

Will the carbon derivatives be as regulated (unregulated) as CDSs?

George Washington thinks (Global Research article) thinks so: "Yes, they’ll get 'creative', and we have seen this movie before …an inadequately-regulated carbon derivatives boom will destabilize the economy and lead to another crash. I have previously pointed out that CDS sellers – like the big sellers of other financial products – know that the government will bail them out if CDS crash again. So they have strong incentives to sell them and to recreate huge levels of leverage. [...] And as I have previously pointed out: (1) the giant banks will make a killing on carbon trading, (2) while the leading scientist crusading against global warming says it won’t work, and (3) there is a very high probability of massive fraud and insider trading in the carbon trading markets".

Best Currency ETFs To Buy and To Short

Note: we track all currency ETFs live as part of our live tracking sites.

We computed the RSI values of all currency ETF and ETNs on the market, then sorted them by short and long time frames. Here they are:

Short term:

The two most oversold ETFs are XRU and CYB, the Ruble and Yuan. There are no overbought ETFs, but the most expensive ones, RSI-wise and with non-insignificant volume, are the double short Euro and the Mexican Peso.

Long term:

Long term, the only oversold ETF is EUO, also a double short Euro. There are three overbought ETFs, ERO (long Euro), Swiss Franc, and Australian dollar. Interestingly, the currency that has appreciate the most this year, the Brazilian Rea,l is not near the most overbought ones.

For your convenience, here are the names of the ETFs and their average volumes:




You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

Please do your own due dilligence.

Natural Gas Storage in Overflow: Last Year's Decline vs This Year Increase

UNG was up 6.25% today. HNU.to was up 15.75%. Apparently on news of cold weather.

There can be the coldest weather in history and there will be enough gas for years to come. Anyone who believes that should take a look at the latest storage charts comparing 2008 and 2009 values:



Note that by this time last year there had been a few weeks of storage decline, while in 2009, we continue to climb. The latest figure was +2Bcf, same "increase" as last week. Since the storage is technically full, these 2Bcf may just be natural leaks!

With UNG up the way it was, opportunity abounds here, as always straddles offer the best chances whether gas goes up or down.

Please do your own due dilligence.